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University of Toronto study titled “Filling the Gap” calls for changes to the federal equalization program.

Ontario Premier Kathleen Wynne is struggling to erase an $11.9-billion deficit. A new study done by a U of T think-tank calls for changes to the federal equalization program. (March 1, 2013) (Kenneth Armstrong / THE CANADIAN PRESS)

Ontario is being milked by the federal government to the tune of $11 billion a year at a time when the province can ill afford it, a new study on the so-called “fiscal gap” concludes.

That means the province’s taxpayers send $11 billion more to Ottawa than they get back in funding and services, says the report to be released Monday by the Mowat Centre, a public policy think-tank at the University of Toronto.

The 14-page study obtained by the Star gives Ontario Premier Kathleen Wynne — who is struggling to erase an $11.9-billion deficit — fresh ammunition as she and Intergovernmental Affairs Minister Laurel Broten press the Harper government for reforms demanded for years by previous premier Dalton McGuinty, who launched several “fairness” initiatives.

“The burden Ontario is being asked to carry is out of line,” author Noah Zon writes in his report, titled “Filling the Gap.”

It calls for changes to the federal equalization program, which was designed to take money from wealthier provinces and redistribute it to poorer ones so that levels of government service are roughly equal across the country.

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The study found the program is clearly “broken” because Ontarians pay 39 per cent of Canada’s federal taxes — about equal to their share of the population — but get just 34 per cent of federal spending, and this at a time when the province is struggling with higher-than-average unemployment and a decline in manufacturing since the recession.

“The difference raises important questions about the responsiveness of federal policy to the needs of Ontario,” writes Zon, who based his calculations on Statistics Canada and federal Finance Department numbers. “Federal spending decisions are significantly skewed against the people of Ontario.”

With Ontarians being shortchanged by longer waiting periods for employment insurance, and getting less per capita for programs like affordable housing, infrastructure, job training, energy sector support and others, the federal government is “undermining Ontario’s prosperity and quality of life,” Zon said.

His study notes Ontario has had below-average economic performance as measured by gross domestic product since 2006 and below average fiscal capacity since the 2009 recession, particularly because of weakness in the U.S., the province’s main trading partner.

Wynne and Finance Minister Charles Sousa are forecasting annual deficits will continue for five more years.

“Ontario is facing a significant budget deficit, despite already having the lowest per capita expenditures on public services of any Canadian province,” Zon said.

The report calls on Ottawa to bring back its annual breakdown of federal spending and revenues by province, which it scrapped in 2009.

McGuinty had long argued that federal MPs in Ontario — under Liberal administrations in Ottawa at first, and later under Harper’s Conservatives — didn’t lobby their political masters hard enough on behalf of their citizens.

Under the federal equalization program, which is worth about $15.4 billion a year, provinces like Ontario and British Columbia lose out because the cost of living is relatively high, while provinces with lower costs like Quebec and the Maritimes reap disproportionate benefits.

The equalization formula is a “legacy of the past,” said Matthew Mendelsohn, director of the Mowat Centre.

For example, Ontario’s equalization payments of just over $3 billion are about half of Quebec’s $7.3 billion — and yet Quebec offers its citizens $7-a-day child care, something Ontario does not fund to such a high level, citing its financial constraints.

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